Unlike Motorola, the company relied on courts to fight its trade battles.

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When George Fisher came to Eastman Kodak in 1994, he brought with him a reputation for being a technological visionary and a manager who had figured out what it took to turn a company around. Fisher's tenure at Motorola, one of the great business success stories of the last two decades, had been marked by dramatic improvements in quality, productivity, and innovation, capped by Motorola's reinvention of the cellular-pager market. Similar feats were expected at Kodak.

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Instead, Fisher has floundered. In his first two years, he did do an excellent impersonation of a turnaround specialist, ridding Kodak of the nonfilm businesses--Eastman Chemical and Sterling Winthrop Drug--that it had acquired during the days when conglomeration was all the rage. But unlike such figures as Jack Welch at GE or the late Mike Walsh at Tenneco, Fisher has not been able to turn Kodak's "core competence"--as the management theorists would say--into a consistent moneymaker. On the contrary, Kodak's near-monopolistic control of the U.S. film market has been steadily eroded by Fuji Film's consistently lower prices. Meanwhile, Hewlett-Packard and Canon have moved strongly into the digital-camera market, which seems to be the future of photography as a whole.

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As a result, Kodak has had to lay off 27,000 employees since 1993, and just recently announced yet another restructuring plan. More tellingly, perhaps, Fisher has devoted an inordinate amount of the company's attention to its price war with Fuji. After Fuji cut prices by as much as 30 percent last summer, Kodak began making noises about charging its rival with "dumping" film here. Kodak had already spent much of the last two years pressing a case before the World Trade Organization. It charged Japan with illegal trade practices that kept Kodak out of consumer markets there and gave Fuji a "profit sanctuary" which allowed it to accept lower margins on its sales in the United States.

Although the actual financial implications of the case were not huge, the psychological investment that Kodak had put into the WTO charges was immense. That this was a tactical error was made clear this month, when the WTO vindicated Fuji on all counts. Instead of seeming like a minor blow, the decision was portrayed as powerful evidence that Fisher's magic had failed him. But while dreaming of a trade victory to solve fundamental business problems seems like a dubious recipe for success, there's one important thing to remember: That was exactly the recipe that Fisher had learned while he was at Motorola.

Cl ... Out of film.

T he Kodak-Fuji case was, as innumerable press accounts have pointed out, the most important case to come before the WTO in its two years of existence. Unfortunately for Kodak--and for supporters of free trade in general--it was also a case involving issues that seemed to fall just outside the WTO's jurisdiction. The trade organization was created in 1995 as the third leg of the world financial order, along with the International Monetary Fund and the World Bank. But while the WTO clearly has the authority to rule in tariff cases and quota cases, it doesn't seem to have authority over cases involving more subtle restraints on trade, primarily those created by arrangements between companies rather than by governments. (Click for more on the U.S. role in that restriction.)

The Fuji case dealt with the tightly interlocked relationship between Fuji and Japan's four largest distributors of photographic film and paper, all of whom sold Fuji exclusively. Now, even under traditional antitrust law exclusive relationships are not necessarily illegal, since they make production and distribution more efficient. And clearly consumer companies are constantly in search of such arrangements. McDonald's sells only Coke. Martha Stewart's sheets and towels are sold only at Kmart. Department stores often fashion exclusive relationships with designers. Nonetheless, by being frozen out of the wholesale distribution market, Kodak has been frozen out of Japan's consumer market as well, particularly since Japan has a law restricting the number of large retail stores.